California should consider renting out the state’s assets

July 31, 2009

In recent days, the reality of the state’s budget cutting extravaganza is sinking in for Californians of every situation and location. State workers are looking at their personal bills and figuring what they can live without to make up for their 15 percent pay cuts and seeing if they can find part-time jobs for those three days a month they will be on furlough. School officials are trying to figure out how they will continue to provide adequate education to their students when they must cut teachers and increase class sizes. College students must determine how they will graduate in time when classes have been cut and fees hiked.

People who provide human services to the state’s poorest and most at-risk residents – poor kids, seniors, victims of abuse – are wondering how they will continue to help these folks with millions less in their budgets. Cities are preparing lawsuits to see if they can force the state to give back their redevelopment money, while figuring out which core services they should cut first.

Even Californians whose wallets aren’t directly reduced by the cuts will begin to feel the cuts when they try to go to the courthouse on Wednesdays or renew their driver’s license on Fridays and find those state offices closed. Or they may notice it when their favorite state park is chained off because the state can no longer afford to maintain it.

It’s tough all over this state. And as many complaints as there have been in recent months, there have been an equal number of ideas – some sensible, others far-fetched – for saving money and raising new revenue: legalizing and taxing marijuana, raising taxes on the rich, demolishing regulatory boards, turning the state lottery into a private entity, just to name a few.

And now, thanks to the hard work of Bill Mundell, chairman of Intekea, a Los Angeles-based economic development firm, and of ZBB Energy Corp., an alternative-energy storage company, there’s one more: The California Enterprise Fund.

The label might be a tad clunky, but the idea behind it is not. And it could potentially bring $100 billion in revenue to the cash-starved state without having to raise taxes, cut essential services or sell off any public land, simply by capitalizing on what California already has.

Here’s the basic concept: The state rents or leases out some of its least used or seriously unprofitable assets to private investors. The private investor can add an amenity that will increase its revenue, say add a restaurant to a state park or operate a concession in courthouses. The deal brings money to both the state and private entity, to maintain and even improve the land or facility.

California has about 33,000 separate assets, from parks to prisons to parking structures. They are worth as much as $200 billion, but cost money to operate.

In normal times, the idea of letting private companies get their greedy hands on California’s public land and facilities would be unpalatable in a state proud of its assets. But when the state is considering selling off many of its properties, including Los Angeles’ Memorial Coliseum, for one-time cash infusions and shuttering many more to the public, what’s the harm in making money off them instead?

Surely commercialization of a state park for a few years is better than shutting it down and leaving it to the forces of Mother Nature, vandals or poachers.

This will surely strike some as an uncomfortable commoditization of California, but if it allows the state to keep what it has in trust for all of us instead of auctioning off the Bay Bridge or a beach or two, maybe an arrangement like Mundell’s private-public partnership is worth considering.

The proposal, which Mundell said he has pitched to Gov. Arnold Schwarzenegger and could be initiated through executive order, should get some serious consideration of both Democrat and Republican lawmakers. It can help them reach their individual political goals of not raising taxes or cutting services.

Besides, state parks officials – who are bracing for the closure of as many as 100 state parks after losing $6.2 million in the recent budget agreement – are already considering their own enterprise fund. They are asking for anyone, including corporations and businesses, to sponsor a park to help to keep it open.

Under Mundell’s proposal, a bipartisan commission would do three things: First, the commissioners would identify and value the state’s assets. No one knows for sure exactly how much land and facilities the state owns, and what they might be worth on the open market.

Next, the commission would identify a package of assets – say a bunch of parking lots or the Department of Motor Vehicles or the lottery – that either aren’t making the state any money or might be attractive to a private investor.

Finally, the commission would seek investors and broker the deals.

Any agreements would have to be approved by the Legislature and the state would retain regulatory control of the land and, most importantly, the ownership.

The enterprise fund might be a model that seems far out when it comes to traditional government financing, but it isn’t pie in the sky. Mundell has modeled his enterprise fund on a similar undertaking by the nation of Australia, which was able to pay off $100 billion in debt and bank another $100 billion for the future. And other cities, like Chicago, have crafted public-private partnerships that do the same but on a smaller scale.

Is it the best way to operate the state’s assets? No. Ideally, California would have the resources to manage its own properties without the involvement of any profit-making company. But we’re in extraordinarily bad financial times with no plausible way to sustain the financial formula crafted by Sacramento. We need bold new ideas to keep the Golden State golden. This is one of them.